Complex Made Simple

Dubai-Saudi trade very healthy despite endemic economic challenges

Trade between the United Arab Emirates’ bustling Dubai and Saudi Arabia has never been better and that’s a good thing because COVID-19 has rattled both these GCC countries

Dubai’s non-oil trade with Saudi Arabia totaled $136 billion from 2010 to 2020 Riyadh is now predicting a 35-45% decline in tourism or a drop in revenues of $28bn in 2020 The UAE's gross domestic product (GDP) for the year is expected to shrink 5.2%

Trade between the United Arab Emirates’ bustling Dubai and Saudi Arabia has never been better and that’s a good thing because COVID-19 has rattled both these GCC countries and left deep economic scars.

The latest on bilateral trade

Dubai’s non-oil trade with Saudi Arabia totaled $136 billion from 2010 to 2020, Dubai Customs recently announced.

For H1 2020, Dubai’s external trade with Saudi amounted to $6.5 bn.

The total value included imports, exports, and re-exports, which stood at $1 bn, $726.4 million, and $4.7 bn respectively.

Similarly, Abu Dhabi Customs announced in July that Saudi Arabia remains at the top of its most trading countries, reaching $4.9 bn in the first five months of the year.

The UAE’s total non-oil trade in 2019 grew by 4.4% to reach $436.4 bn, compared to $418 bn in the previous year, according to Federal Competitiveness and Statistics Authority (FCSA).

The imports jumped from around $244.6 bn to $249 bn, and represented 58% of the total foreign trade in 2019. 

Last year, the UAE’s total trade exchange with Saudi accounted for $30.8 bn.

Read: Saudi’s economy feeling the brunt of low oil prices and production cuts

Saudi’s economic struggles

In the wake of COVID-19, Riyadh is now predicting a 35-45% decline in tourism or a drop in revenues of $28bn in 2020. The global tourism industry is predicting a fall of 58-78% this year.

The annual Hajj was limited to 1,000 domestic pilgrims while Umrah pilgrimages which have been halted since March will resume starting in October but with restrictions in numbers as well.

An almost 40% drop in Brent crude prices over the past year, combined with production cuts helped push Saudi’s oil revenue down by 45% in Q2 from a year earlier. A range of austerity measures followed, cutting investment spending while also increasing taxes and slashing payouts to poorer families.

Last July, Saudi halted a budgeted 1,000 Riyals ($267) a month subsidy for about one million public employees, a program which it had introduced when VAT was announced in 2018. The move saved the kingdom some $4.8 bn. Then VAT trebled to 15%.  

Car sales have dropped from 800,000 in 2015 to 400,000 in 2018 and are now forecast to drop by a third again in 2020 because of the latest VAT hike.

Saudi also borrowed $26.6bn and announced a stimulus package of $32 bn.

The kingdom has raised its debt ceiling from 30% to 50% from 2022 onwards, which could mean more borrowing on the horizon.   

Saudi could face a budget deficit of about 13% of GDP in 2020, according to the median of forecasts compiled by Bloomberg. Finance Minister Mohammed Al-Jadaan said the kingdom will double its borrowing this year to soften the impact on the state’s reserves, which it needs to maintain above a certain level to support the kingdom’s currency peg to the U.S. dollar. Saudi Arabia’s economy is expected to contract 4.8% in 2020 before growing by 3.2% next year, according to a Bloomberg survey of 11 economists.

Saudi Arabia’s GDP per capita is still high at $21,767. 

Read: GCC Expat exodus: 10% drop in UAE’s population expected

UAE’s economic struggles

The UAE’s Central Bank reported the country saw a “significant decline in economic activity” as a result of COVID-19. 

The UAE’s gross domestic product (GDP) for the year is expected to shrink 5.2%, the bank said, worse than the 3.5% drop that the International Monetary Fund (IMF) predicted.  

UAE’s GDP dropped an estimated 7.8% last quarter after a 0.8% contraction in the prior three months.

Following the 2008 global economic crisis, UAE’s economy contracted by over 5% in 2009, according to the IMF.

The UAE’s non-oil GDP contracted 9.3% in Q2 2020, compared to 2.7% in Q1. 

For the full year, the non-oil economy is projected to contract 4.5% because of the outbreak.   Forecasts assume an increase in government spending that will average close to 28% in 2020, the central bank noted, adding that it expects to see a recovery in employment levels.

A paper released earlier this month by the Arab Monetary Fund (AMF) predicted that the COVID-19 pandemic could lead to up to 7 million job losses across the Arab world.  

The AMF estimates that the region’s economies need to grow by at least 3.9% a year to start creating enough jobs to cut unemployment below the recovery of 3.5% predicted by the IMF for the region next year.

Travel barriers lifting

Slowly and cautiously, barriers to travel are starting to come down in the Gulf.

From October 1, Oman is reopening its land borders and its airports on the same day.

In the UAE, the Federal Authority for Identity and Citizenship (FAIC) says it has resumed issuing entry permits into the country, although “work permits are still on hold at this stage.”